“The more we control the virus, the more we control the economic recovery,” said former director of the US Centre for Disease Control and Prevention (CDC), Dr Tom Frieden.
This is exactly how things are playing out in China. As major economies such as the US and Europe step backwards in their fight against the pandemic, China has shown that an economic rebound is possible (and sustainable) when the virus is under control.
The latest economic growth figures released by China show that it is the first major economy to report growth that significantly surpasses where it was at the same time last year. Other economies that have reported post-lockdown growth like the UK and the US are still behind pre-pandemic levels and face a double dip amid the second and third waves of the virus.
The IMF foreshadowed this. Its latest forecasts indicate that China will be the only major economy to grow this year, at 1.9% for 2020 and accelerating to 8.2% next year. In contrast, the IMF expects contractions of 5.8% in the United States and 8.3% in the Eurozone.
This is good news for the Asian region and investors in APN’s Asian REIT Fund. According to a McKinsey & Co study1, 60% of goods traded by Asian economies is intra-regional while 71% of Asian investment in start-ups and 59% of foreign direct investment is also made within the Asian region. As Asia’s economic giant, China’s strong recovery holds much promise for the economic recovery of the region.
In the countries in which the Asian REIT Fund is invested, green shoots are already evident. Hong Kong and Singapore, for example, have announced a bilateral air-travel bubble. This should provide some relief to the hard-hit hospitality and retail sectors.
This isn’t going to contribute meaningfully to growth in either country but it sets the scene for more such travel bubbles to form in the region where the virus is very much under control. Considering that intraregional tourism in Asia has grown 2.7 times over the last decade1, exceeding the growth of international tourism, agreements like this will help confidence return.
With the US and Europe now fighting a new wave of the pandemic that will delay economic recovery, China is keen to get its formidable 400 million strong middle-class spending. The recent Golden Week holiday in China recorded 637 million domestic tourist trips, showing how quickly things have returned to something close to normality.
This was a timely message to the world in the face of some pockets of anti-China sentiment. The US-led trade war and the rhetoric of ‘making China pay’ have far less impact when it is China and Asia more broadly, rather than the US or Europe, that is returning to normal.
The APN Asian REIT Fund was established to capitalise on the Asian growth story. Whilst the Fund does not currently invest directly in the China market due to its nascent REIT legislation, the Fund is exposed to REITs listed in other Asian markets (Hong Kong and Singapore) that own assets in China.
Of course, China’s growth and influence extend beyond its domestic real estate market. One only need look at office demand from Chinese tech firms looking to consolidate their regional hubs in Singapore, or the number of Chinese firms – the latest being Ant Group, the world’s largest IPO – choosing to list in Hong Kong rather than the US, to appreciate the region’s growing influence.
This is no surprise to us. Over the last five years, the APN Asian REIT Fund has delivered strong relative total returns of 7.25% p.a2. This compares favourably to the domestic AREIT market’s 6.06% p.a. return and the Global REIT index return of 2.48% p.a3. With China now charting its own course towards post-pandemic recovery, we have every reason to believe the Asian growth story will not only continue but accelerate.
For investors looking for a sustainable yield from the world’s fastest growing region, one that has dealt most capably with the pandemic and is now emerging from its effects, the Asian REIT Fund with a current running yield of 6.12%4 might be worthy of consideration.